giofranchi

Sanjeev, I have just purchased two tickets for both the dinner and the presentation. One for me, one for a beautiful girl! ;D ;D I want her to meet 140 of the most astute investors in the world!! ;) I truly look forward to meeting you and other board members next April in Toronto! Cheers, Gio

THE UNINTENDED CONSEQUENCES OF ULTRA‐EASY MONETARY POLICY Gio Nov+2013_SED+Profile.pdf

November 2013 Investment Results: +2.5% +21.2% YTD 2013 Gio TPRE_Investment_Results_November_2013.pdf

Hi ap1234, we have already talked about your worry of a secular bear in bonds, and you know that generally I agree with you. Anyway, this is exactly what great entrepreneurs do: to shift resources from low yielding assets with poor future prospects into higher yielding assets with much better future prospects. How? Well, it is very difficult to say… Chances are you will never know their businesses as well as they do, and therefore it is very difficult to predict what their next move might be… let alone their next two, three, four, etc. moves! Yet, the value of those companies is the combination of all their future moves discounted to the present! Think of FFH and its acquisition of Thomas Cook: from there they might go on acquiring some of the best businesses in a nation of 1.2 billion people, whose median age is just 27! Can you imagine the potential for growth that is built in there? How do you take that potential into consideration, while trying to value FFH? Once again I repeat what I am doing: I look for great entrepreneurs, whose process I understand and agree with, who already have an outstanding track-record, and who are still young enough to go on building wealth for a very long time. I suppose returns that are in line with those achieved in the past, or somewhat less. If the price is low enough to make possible a 15% compounded annual return for years to come, I invest and stay with them. In a diversified portfolio (10 to 15 names) some will surprise on the downside, some on the upside, but overall I guess I will get where I want to go. :) And, by the way, at Q3 2013 end on BRK’s balance sheet there were assets of “Insurance and Others” worth $302 billion, of which only $29 billion were invested in bonds: 9.3%. While Total Assets were $458 billion, therefore bonds represented only 6.55% of Total Assets. Why cannot MKL and FFH follow suit? Gio

Wonderful presentation that can be dowloaded from the following link: http://fundooprofessor.wordpress.com/2013/12/01/why-i-bought-thomas-cook/ WOW! Maybe, a good investment by Mr. Watsa & Co. at last?!?! ;D ;D ;D Cheers, Gio

Dazel, now I will print your words and hang them on the shelf in front of my desk!! ;D ;D ;D Seriously, thank you! I read with carefulness all posts of yours and I respect your ideas very much. :) Cheers, Gio

I don't have a bearish view necessarily on FFH. I just think it's currently at best fairly valued and probably overvalued. I never buy something hoping for or expecting growth. Today I think it's not a bargain. That's it. Ok! Got it! Thank you, Kraven. Cheers, Gio

Well, I would also add that he is actually holding a lot of cash (30% of portfolio!). So, he has opted both to retain some exposure to his alpha and to get some of the stability cash provides. At least, this is how I see it. :) Gio As many of us observed during FFH's lean years, when you are dealing with a holding company that is an umbrella for several subsidiaries, sometimes cash is not located exactly where you need it. When you look at the consolidated balance sheet, there might appear to be plenty of liquidity but the holdco might be a wee bit short. During the lean years, one of the uncertainties was the extent to which the regulators would permit FFH to dividend funds up from its subsidiaries to the holdco. And then there was the black box of subsidiary capital adequacy, particularly for the run-off group. Prem pulled a number of rabbits out of his hat to keep the ship afloat, including IPOs of ORH and NB, a little financial wizardry to allow him to consolidate ORH for income tax purposes, and a couple of timely private placements of FFH shares (notably to Sir John). Having learned this lesson rather painfully, Prem is not allowing the holdco cash balance to be pressured. SJ Thank you!!! :) Gio

Well, I would also add that he is actually holding a lot of cash (30% of portfolio!). So, he has opted both to retain some exposure to his alpha and to get some of the stability cash provides. At least, this is how I see it. :) Gio

Thank you very much, shalab! It has been my pleasure to make your acquaintance and to meet other outstanding people on this wonderful board! Hoping for many more decades of reasonings and discussions about investments and what’s truly important in life with all of you! :) Cheers, Gio

Kraven, I agree with you! It was just a polite way to say: don’t ever expect a stock tip from me… and, if by chance you get one, DON’T act on it!! The first reason I write on the board is to get to know very interesting people. But the second reason is to get to know very interesting people who disagree with me. It forces me to think harder and to always question my thesis. And that is priceless! ;) I respect your thought so much, that I really need to know your bearish view on FFH. If you would briefly expose it, I would be very thankful! And, by the way, my post was accurate, but incomplete… I should have written: I will never achieve Eric’s or Packer’s or Kraven’s returns. ;D ;D Cheers! Gio

Joel, great post! :) I am not really comfortable with insurance and reinsurance regulations… So, I ask you a question: if, like ap1234 suggests, MKL cannot invest wherever it finds value (because is obliged to always invest in bonds), how could it be so much different for a reinsurance company like GLRE? For what I know, in fact, GLRE has no capital invested in bonds. Thank you, Gio

Simply enough, here we have 3 possibilities: 1) Mr. Watsa is right: today’s BVPS makes absolutely no sense… FFH will create great value. 2) Mr. Watsa is wrong, and will recognize the evidence of his mistake, when that evidence comes: he will take losses on FFH’s hedges and use a stupendous amount of cash to restart from there… FFH will create good enough value. 3) Mr. Watsa is wrong, and he will never recognize the evidence of his mistake… FFH will cease creating value. Practically anybody on the board believes either in 2) or in 3)… I still believe in 1)… ;D ;D ;D Gio Let's say the market goes up 20% in 2014 and then drops 20% in 2015. Is Prem right? No. That would be possibility n.2 or n.3 (let's hope n.2!!) Gio

No, I am certainly not as good as other board members… I am very well aware of that! I just wanted to point out that I don’t need to do things I don’t understand… because, although I will never achieve Eric’s or Packer’s returns, I can live quite comfortably with mine! And I sleep soundly at night! ;) Gio

I understand what you mean… It is just that a business which doesn’t depend on management is UTTERLY outside my experience, and therefore outside my circle of competence… Especially if it is a financial business… (for what I know, even KO could be killed by bad management… but Mr. Buffett seems to disagree… therefore, who am I to judge?). Of course, I am no one, but I don’t understand why I should do something I don’t understand… I can live without the BAC of this world very well indeed: I have bought OAK at $36 and sold it at $57, my investment in TPOU doubled before I sold it, I bought ENDP at $37 and now it is worth $67, I bought LMCA at $95 now it is at $154 (and also gave me more money with the STRZA spin-off), I have bought VRX at $75 now it is at $108, etc. I am making a lot of money even with BH!!!!!! ;D ;D ;D ;D Gio

Look, my model considers a 12% CAGR in BVPS for the next 16 years… then FFH might as well completely close doors and distribute all its capital to owners. To get a 12% CAGR in BVPS, they have to achieve little more than 5% on their portfolio of investments going forward… Historically, they have achieved 9.2%. Even if FFH loses 2 or 3 more years because of equity hedges, I don’t think something “cataclysmic” has to happen for FFH to provide those returns to shareholders… But I would tell you a lie, if I didn’t admit that I am invested in FFH also because I think that the general market price level will be little changed 10 years from now! ;) Gio

Anyway, I have posted a model for FFH, which discounts its BV to the present, and arrives at 1.5 x BVPS. And it clearly underestimates fair value! So, probably, Eric is much more convincing than me… no doubt about that!! But I also have made the effort to communicate my thesis about FFH! ;) Gio

If Mr. Watsa is right, as I believe, BV today is extremely compressed! It simply is not a metric you could rely on, to arrive at a valuation for its stock. In 2007, 2008, and 2009 BV increased 35% annual. And go look at the numbers: FFH in those years booked much larger gains from its equity hedges than from CDS. Simply because its equity investments will fall dramatically less than the Russell2000, the index they are using to hedge. Then, with all that cash at their disposal they will take advantage of very compressed and undervalued stock prices, and position themselves like almost nobody else for the subsequent bull market. They are following the pendulum, and positioning themselves accordingly. They are extremely contrarian and therefore very hard to follow… but, sooner or later I still believe they will be proven right. Remember that business is always about decisions, better: strategic decisions. This is true for practically every kind of business, but most of all if it is a financial business. I am happy for your investment in BAC. And I will never invest in BAC. Simply because I have no idea of the process that goes on inside such a gigantic organization. And because I don’t really know who is in charge. What he has achieved in the past. Why he should achieve good results in the future. Because he hasn’t deserved my trust. And I invest only with people who have won my trust. Rest assured: it is not such a simple thing to do. This is how I do business, and it is also how I invest. Gio

Simply enough, here we have 3 possibilities: 1) Mr. Watsa is right: today’s BVPS makes absolutely no sense… FFH will create great value. 2) Mr. Watsa is wrong, and will recognize the evidence of his mistake, when that evidence comes: he will take losses on FFH’s hedges and use a stupendous amount of cash to restart from there… FFH will create good enough value. 3) Mr. Watsa is wrong, and he will never recognize the evidence of his mistake… FFH will cease creating value. Practically anybody on the board believes either in 2) or in 3)… I still believe in 1)… ;D ;D ;D Gio

Well, just have a wonderful holiday to spend with your loved ones! :) Gio

Guys, it is very easy an plain to see: if you believe Mr. Watsa & Co. will go on creating value, FFH today is deeply undervalued; instead, if you believe Mr. Watsa & Co. will cease to create value, FFH is not undervalued. Period. For my part, I repeat what I have said in another thread: under $380 I will buy more. :) Gio

No idea… Well, its peers in this market are by now selling for more than 1.3 x BVPS… Of course, they are making things that look smart, while FFH is making things that look dumb! Right? … We will see. Gio

Whatever the final outcome, I love this kind of strategic, very well thought out plans! They tend to add great value most of the time. Let’s hope Kinesis and the Cathedral acquisition won’t be the exception. We will see. Anyway, I like Mr. Brindle's modus operandi more and more. :) Gio

This reminds me of Mr. Malone, who might have known and studied Mr. Sage’s methods. I must take heed and try to follow in their steps! ;) Gio

Gio